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The Morning Ledger: Government’s Exit Gives GM Freer Hand

The Morning Ledger from CFO Journal cues up the most important news in corporate finance every weekday morning. Send us tips, suggestions and complaints: david.hall@wsj.com. Get The Morning Ledger emailed to you each weekday morning by clicking here. Follow us on Twitter @CFOJournal.

The government is getting out of General Motors – and the company is getting a freer hand in deciding what to pay its top brass. The Treasury Department plans to sell its remaining shares by year-end, the final step in winding down the 61% stake it took with taxpayer money at the height of the financial crisis, the WSJ’s Damian Paletta and Jeff Bennett report. In the final tally, the deal will have cost taxpayers about $10.4 billion, based on the company’s current $38.12 share price. The U.S. so far has recouped $38.4 billion of the $50 billion initially invested and the coming sales would raise another $1.2 billion at the current share price.

The exit frees GM next year from compensation limits on its top executives — a Treasury-imposed condition that CEO Dan Akerson has said makes it harder to recruit new executives and to retain others, the Detroit Free Press’s Nathan Bomey writes. “GM people can’t wait to get government people out of their knickers,” Gerald Meyers, former chairman of American Motors and a professor at the University of Michigan, tells the Journal. “It has been demoralizing to management.” Mr. Akerson, who turned 65 last month, has signaled that retirement is on the horizon and has said he prefers his successor comes from within to avoid disruption, Bloomberg notes. There are at least four GM executives who have been mentioned as CEO contenders – including CFO Dan Ammann.

Treasury’s divestment will also make it a lot easier for the company to reinstate a dividend, the WSJ says. And if it doesn’t move quickly to return money to shareholders, the auto maker could face pressure from activist investors, Harry J. Wilson, founder of restructuring adviser Maeva Group, and a former member of the Obama auto task force that helped restructure GM, told Bloomberg. “They will be watched very closely,” said Mr. Wilson. “They need to focus on improving operating margins, continue to invest in new product and create a more efficient use of capital.”

THE DAY AHEAD:

PetSmart is expected to post strong earnings. Ahead of the Tape’s Spencer Jakab notes that in the past 18 years, the amount Americans spend on pets has increased at a compound annual rate of 6.5% to over $50 billion. PetSmart faces competition from Amazon.com, but it also generates revenue from things Amazon can’t replicate. In the past six years alone, PetSmart’s sales from services, such as pet grooming, have doubled to nearly 11% of revenue, far outpacing tangible goods.

Goodwill testing may soon get simpler for private companies. Annual tests that companies use to check whether assets they have acquired have lost value and need to be written down could become simpler soon, Emily Chasan reports. The FASB is set to decide on Monday whether to endorse changes proposed by its new Private Company Council that would let private firms choose to amortize so-called goodwill from past acquisitions on their balance sheets. The proposal would also simplify and limit the testing that triggers write-downs. If the board approves the changes next week, they would be written into U.S. GAAP. If companies choose the reduced disclosures, though, they could be setting themselves up for further costs down the road if they choose to go public. “If you elected the alternatives under the PCC and then try to go public, from our perspective you’re going to have to undo those elections,” Paul Beswick, chief accountant at the SEC said at a Financial Executives International conference in New York this week.

CORPORATE NEWS:

Caterpillar unit probed for dumping. Federal investigators are probing a subsidiary of Caterpillar to determine whether it was dumping train parts into the ocean as part of a possible scheme to bill railroad companies for unneeded repairs, the WSJ reports. Caterpillar disclosed in a securities filing three weeks ago that it had received a federal grand jury subpoena to provide documents and information on its Progress Rail unit, which repairs locomotives and railcars. The grand jury investigation is examining whether Progress Rail was dumping brake parts and other items as a way of concealing evidence that Progress Rail was charging owners of rail equipment for replacing parts that were still in good shape. Union Pacific was one customer believed to have been affected by the alleged Progress Rail activities.

Time Warner Cable suitors line up funds.Charter Communications is nearing an agreement with banks to borrow money for a bid for Time Warner Cable, the WSJ reports. Charter has held talks with Bank of America, Barclays and Deutsche Bank about a multibillion dollar debt package that would underpin an offer for Time Warner Cable, which has a market cap of nearly $35 billion. Another possible source of cash for a bid: sovereign wealth funds and wealthy individuals. Arranging equity commitments from such parties could allow Charter to increase the cash component of the deal without taking on too much debt.

Ex-Needham CFO pleads guilty in theft. A former CFO at Needham & Co. pleaded guilty to conspiring to steal $1 million from the firm in a false invoicing scheme, Reuters reports. Prosecutors accused Glen Albanese of running a scheme from 2000 to 2010 in which he induced vendors to submit inflated bills or fake invoices for services that were not provided. They said Mr. Albanese received illegal proceeds by accepting envelopes containing thousands of dollars in cash, or asking vendors to pay personal expenses. These expenses included such things as home landscaping, thousands of dollars of wine, equestrian equipment, tickets to Walt Disney World and Six Flags theme parks, and “a designer-breed dog and ‘canine fence,’” prosecutors said. As part of his plea, Mr. Albanese also agreed to reimburse $1 million to the investment banking and brokerage firm. U.S. Attorney Paul Fishman said Mr. Albanese faces a maximum of 20 years in prison.

United CFO: Integration a ‘tough slog.’ Merger integration “has been a tough slog,” United Continental CFO John Rainey says. “The last three years we basically ran a merger. Now we’re running an airline.” Mr Rainey says his company is interested in Boeing’s new 777 planes to bolster long-range flying as it braces for competition from Middle Eastern carriers, Bloomberg reports. He made the comments two days after United unveiled plans to cut spending by $2 billion through 2017. Since combining with Continental Airlines, United has struggled to control costs and the carrier is focusing on an overhaul of its fleet.

Ousted Fannie Mae CFO tells his side of the story. Former Fannie Mae CFO Timothy Howard, who was ousted in late 2004 is about to release a book, “The Mortgage Wars,” to present his view of what burst the housing bubble and created the 2008 financial crisis. To hear Mr. Howard explain the issue, Fannie Mae bears little responsibility for the meltdown, American Banker’s Paul Davis writes. To Mr. Howard, the crisis was caused by a handful of greedy banks and mortgage lenders; Fannie was merely collateral damage in a series of battles. “The mortgage wars were fought not over reducing risk to the taxpayers or providing the lowest-cost and safest types of home loans to consumers,” he writes. Rather the war was over “ideology, market power and money.” From Mr. Howard’s perspective, Fannie has little to apologize for, so he has no reason to do so by proxy.

TAXATION AND REGULATION:

Baucus puts tax breaks on chopping block. The debate over tax reform entered a more contentious phase, as the Senate’s top tax writer put forward a plan to repeal several major provisions used by corporations, the Hill reports. Finance Committee Chairman Max Baucus (D., Mont.) proposed rolling back an incentive that allows businesses to write off property more quickly than it depreciates — currently the most expensive corporate break in the tax code. The plan would also repeal the “last in, first out” accounting method, which is fiercely defended by many companies that use it to reduce their tax bill. The proposal is likely to spur a backlash from business groups that were already critical of the proposal that he released earlier this week to change international tax rules.

U.S. to consider cellphone use on planes. Weeks after expanding use of electronic devices during flights, the FCC is looking at allowing passengers to use their cellphones on airplanes. While phone use would still be restricted during takeoff and landing, the proposal would lift an FCC ban on airborne calls and cellular data use by passengers once a flight reaches 10,000 feet, an FCC official tells the WSJ’s Ryan Knutson and Gautham Nagesh.

ECONOMY:

Yellen closes in on top spot at Fed. Janet Yellen’s confirmation as the next Fed chief became a virtual lock when a Senate committee approved her nomination, the WSJ reports. The Senate Banking Committee voted 14-8 to approve Ms. Yellen’s nomination, sending her name to the full Senate for a final confirmation vote. A separate rule change by Senate Democrats to limit the use of the filibuster means Ms. Yellen is nearly guaranteed to become the first woman to lead the Fed in its 100-year history.

HEALTH CARE:

White House to push back health-insurance enrollment for 2015. The Obama administration is planning to push back the period during which Americans sign up for coverage under the new health law in its second year of operation, a change that could reassure insurers while also avoiding the 2014 midterm elections, the WSJ reports. The move is intended to give insurance issuers “the benefit of more time to evaluate their experiences during the 2014 plan year and allow them to take into account those who may enroll late, including young adults, before setting 2015 rates,” the Department of Health and Human Services said.

CFO MOVES:

Fidus Investment, a business-development fund based in Evanston, Ill., saidCary L. Schaefer, its chief financial officer and chief compliance officer, will relinquish the CFO title to become a senior investment professional for the company’s investment adviser, Fidus Investment Advisors. Executive search firm Spencer Stuart has been retained to help find a new CFO, according to a regulatory filing. Ms. Schaefer will remain the company’s chief compliance officer.

Iveda Solutions, a cloud video hosting company based in Mesa, Ariz., hired Bob Brilon as its chief financial officer and treasurer. He is currently CFO of Brain State Technologies, according to a press release, and has served as CFO for Iveda in the past.

Jasper Wireless, a closely held Internet-of-things service provider based in Mountain View, Calif., hired Rajat Bahri as its chief financial officer. He was most recently CFO of Trimble Navigation, according to a press release.

THE WEEKEND READER

Every Friday we select a handful of in-depth articles we think are worth a bit of your valuable weekend time, either because they peel back the layers on a compelling business story, or somehow make us look at business in a different light.

HealthCare.gov and the gulf between planning and reality. The problem with HealthCare.gov wasn’t mainly a timeline problem or a budget problem — nor was it a hiring or procurement problem. The problem, writes Clay Shirky, technology writer and professor at NYU’s Interactive Telecommunications Program, “was that the site did not work, and the administration decided to launch it anyway.” Washington doesn’t have the right management and cultural attitudes toward technology to lead major technology initiatives. “The vision of ‘technology’ as something you can buy according to a plan, then have delivered as if it were coming off a truck, flatters and relieves managers who have no idea and no interest in how this stuff works, but it’s also a breeding ground for disaster,” Shirky writes. “Whichever party is in the White House will build and launch new forms of public service online. Unfortunately for us, the last new technology the government adopted for interacting with citizens was the fax.”

The rediscovery of India. “We are watching the birth of a new sense of nationhood in India, drawn from the aspiring middle classes in its cities and towns, who are linked together by commerce and technology,” writes CNN’s Fareed Zakaria in McKinsey and Co.’s Insights & Publications. Economic liberalization combined with technology has managed to accomplish what politicians from Jawaharlal Nehru onward have not: create a national economy and culture. True, political paralysis remains a problem. “Many foreign observers, particularly Western businesspeople, look at India today and despair,” he writes. But the 250 million-strong (and rising) urban middle class can’t be ignored. “India will never be a China,” he writes, where a ruling elite directs development. “In India, the questions are different: Are Indians reformers? Can millions of people mobilize and petition and clamor for change? Can they persist in a way that makes reform inevitable? That is the only way change will come in a big, open, raucous democracy like India.”

The wide world of sports. “Thelonger I do this crazy job the more amazing it seems how insulated we are as sports fans,” writes sportswriter and NBC columnist Joe Posnanski. In 2007, for example, game seven of the Japan Series ended in a perfect game. In the U.S., the series “didn’t even reach the level of ignored.” Posnanski has other stories: about the recent retirement of India’s greatest and most-loved cricket player, Sachin Tendulkar, and the unlikely international victories of the Canberra Cavalry, an Australian baseball team with a payroll of $47,000—“That’s not one player. That’s the whole team’s payroll.” What relevance do these athletes have to the typical American fan? Maybe not much. “Sometimes, though, it’s fascinating to go outside the circle,” Posnanski writes.

Deloitte's Financial Reporting Alert discusses certain key accounting and financial reporting considerations related to the current economic conditions in the eurozone and Puerto Rico, including a summary of financial reporting implications that would result from a country's decision to exit the eurozone and an outline of disclosures recommended by the SEC in 2012 about European sovereign debt.